Ubiquitous daily fantasy sports companies DraftKings and FanDuel have been issued cease-and-desist letters from the New York State attorney general, who contends that their games amount to illegal gambling.
“Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers,” Attorney General Eric Schneiderman said in a statement. “Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country."
The AG argues that both companies use "deceptive advertising" to attract customers to their unregulated online gambling operations, falsely marketing them as games anyone can win but instead unevenly distributing the majority of winnings to "a small subset of experienced, highly sophisticated players."
The companies argue that their enterprises do not qualify as gambling, since in addition to requiring more skill than luck, they were also legally sanctioned by the Unlawful Internet Gambling Enforcement Act in 2006, which exempted fantasy sports. But with prizes reaching up to a million dollars on individual sports, the line between "chance" and "skill" is increasingly blurred.
In the letter to DraftKings [PDF], Schneiderman writes that “customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each DraftKings wager represents a wager on a 'contest of chance' where winning or losing depends on numerous elements of chance to a 'material degree.’”
DraftKings spokeswoman Sabrina Macias told the Times that the company is “disappointed he hasn’t taken the time to meet with us or ask any questions about our business model before his opinion,” adding that there were more than 500,000 daily fantasy sports users in New York State. A DraftKings statement also said that "We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.”
FanDuel's statement echoed its competitor, saying that “Fantasy sports is a game of skill and legal under New York state law. This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country.”
Schneiderman's investigation began after a DraftKings employee accidentally leaked internal betting data, and went on to win $350,000 on FanDuel that same week. Despite his access to potentially advantageous data, DraftKings determined that he did not use his position to win. Nevertheless, both companies subsequently forbade their employees from competing in contests on other sites.
New York is the second state to move to shut down fantasy sports companies—in October, Nevada ruled that the games were considered gambling and thus, required a license.